Expanding Ultima Foods in China

Table of Contents

Introduction

The company selected for the assignment is Ultima Foods, which is a Canadian food company that owns two brands of dairy products: IÖGO and Olympic. The company was founded in 1971 as a small yogurt company (Ultima). In the 1980s, Ultima became the first yogurt producer to build a national brand, and it remains in a competitive market position to this day (Ultima). The country was selected for expansion in China, and it is known for its large population and growing economy. Given that the popularity of yogurt in China is on the rise, efforts to expand the IÖGO brand to China could be successful. Still, the Chinese yogurt market is highly competitive, and Ultima Foods will likely struggle to become a market leader.

The Exterior

Dairy products, in their various shapes and forms, are popular all around the globe. In their choice of dairy products, people often look for a combination of natural sources, taste, and value. Yogurt is considered to be a tasty snack or dessert that also brings health benefits by supporting digestion. These beliefs affect the popularity of yogurt across the world. The brand selected for expansion, IÖGO, presents various types of natural yogurts that come in different forms and with various tasty additives. Ultima Foods strives to provide high-quality products to customers, and thus all the ingredients used to make IÖGO are natural and locally sourced. This attracts customers who wish to improve their eating habits while also distinguishing the company from its competitors. China was selected as a destination for the international expansion of IÖGO due to its large population and the growing popularity of dairy products there. The company believes that these features of the Chinese market make it favorable to new entrants and will bring more profits.

Nature of Expansion

The product suggested for expansion has many characteristics that are beneficial to consumers in China. First of all, it is tasty, so people who have not tried it yet are likely to enjoy the flavor. Secondly, the product has several forms that consumers can choose from, and thus it can fit into any lifestyle. Thirdly, IÖGO is a natural product that does not contain any chemical substances. Hence, it is a great alternative snack for people who look after their health and well-being. Finally, yogurts are believed to be good for the digestive system, and they can be particularly useful for people living in large cities as their life is usually too busy to ensure the right nutritious choices. If marketed to customers, these benefits will help to ensure the popularity of IÖGO in China.

As explained above, the choice of country is justified by its large population and the growing yogurt market. According to “Yoghurt Market Brief”, the sales of yogurt in china have grown more than twice between 2012 and 2017, and they continue to grow due to the rising popularity of this product (Figure 1). As a result, expanding a famous yogurt brand to China could be a successful effort. Another factor contributing to the company’s success potential is the fact that Ultima Foods is an established company, and its management has experience with supply chain management, procurement and sourcing, marketing, and operations. Establishing a supply chain in China could be particularly tricky because IÖGO relies on natural, locally sourced raw materials. Hence, Ultima Foods will need to develop production in China and source milk from local farmers.

Analysis of Competition

The growing yogurt market in China is dominated by three large Chinese manufacturers: Yili Group, Mengniu, and Bright Dairy (Figure 2). However, some smaller producers are also evident in the market, which means that there is space for new entrants. Because the IÖGO brand is not familiar with the target market, Ultima Foods will face competition both from large corporations and from smaller market players. The main weakness of large companies that dominate the market is the fact that their products are not natural and contain chemical additives. While they are not harmful to people, consumers often prefer more natural brands, mainly if the organic alternative tastes the same or better. Furthermore, IÖGO will have the benefit of novelty, which will help to bet more customers to try it in the first few months of expansion. Small companies populating the Chinese yogurt market, in turn, may not have the same level of experience in business and marketing as Ultima Foods. Hence, it is likely that Ultima Foods could make its brand IÖGO popular in the target market because its yogurt is natural, and the company has experience of business success.

Country Research

China is a country located in East Asia, which borders Mongolia, Russia, Kazakhstan, North Korea, Nepal, Vietnam, and other local states. The country is rather large geographically with an area of 9,596,960 square kilometers, but its population is even more significant (Central Intelligence Agency). As of 2018, the population of China was nearing 1.4 billion people (World Bank Group). The largest share of the population are people aged 25 to 54 years, although there is also a high percentage of children (17.3%) and older adults (12.3%) (CIA). People in China generally have a good level of education, and nearly 97% of the population is literate (CIA). China’s GDP in United States dollars was 13.6 trillion in 2018, which is over ten times more than it was in 2000 (WBG). Consequently, China’s growing economy is attractive to many international companies and brands seeking to expand geographically. The consumption potential of consumers in China is also relatively high, with a national poverty rate of about 3% and moderate but stable household income (CIA). These characteristics make the country the right choice for expansion, and the multi-domestic strategy would be most beneficial to Ultima Foods due to the need to establish production locally and the cultural and social differences that exist between Canada and China. Verbeke and Asmussen note that this strategy should be applied in cases where the need for global integration is low, but the company needs to respond to local preferences, supply chain issues, and similar concerns promptly (1063). Market research on the country can be applied to clarify the strategy and identify differences that could influence IÖGO’s performance in China.

China’s government and its legal environment are generally favorable toward international businesses. The type of government in China is a communist, party-led state, which might scare many investors from capitalist nations (CIA). Still, the government takes steps to regulate competition and support companies of various sizes by promoting consumption and controlling economic growth (CIA). In the food market, Ultima Foods is likely to face legal challenges because of stringent food quality and safety regulations in China (Liu et al. 4127). Still, if the company could develop a strategy to maintain the high quality of its products while sourcing locally, it could gain support from the government for engaging local farmers and the labor force.

Cultural Risks

According to Gollnhofer and Turkina, cultural distance is among the main factors leading to unsuccessful expansion attempts (21). The yogurt market in China is influenced by various traditions, beliefs, and cultural characteristics. For example, in the past, honey yogurt used to be a luxury only available to the higher class (Gentlemen Marketing Agency). People in China are also not used to eating yogurt as a dessert and prefer to drink it on the go (GMA). Cultural distance between Canadian and Chinese consumers thus requires Ultima Foods to modify its IÖGO products. These modifications could involve highlighting organic sources through packaging and marketing, creating products with traditional Chinese tastes, and pricing slightly above average to create a feeling of luxury.

Conclusion

On the whole, the Chinese yogurt market is promising due to its continuous growth and the large target audience. While Ultima Foods should consider expansion to China, competition, local operations, and cultural distance are likely to present obstacles to success. With the right approach to production and marketing, the company could become successful in this market, thus earning access to nearly a billion potential customers, not including children and teenagers. The high geographical connectedness of China to other Asian countries would also make it an excellent starting point for future expansion efforts. Thus, expanding to China could pave the path for Ultima Foods’ global growth and success.

Works Cited

Central Intelligence Agency. “East Asia/Southeast Asia: China.” The World Factbook, 2020. Web.

Gentlemen Marketing Agency. Marketing to China, 2018. Web.

Gollnhofer, Johanna Franziska, and Ekaterina Turkina. “Cultural Distance and Entry Modes: Implications for Global Expansion Strategy.” Cross Cultural Management, vol. 22, no. 1, 2015, pp. 21-41.

Liu, Zhe, et al. “Food Safety Governance in China: From Supervision to Coregulation.” Food Science & Nutrition, vol. 7, no. 12, 2019, pp. 4127-4139.

Ultima. “Story and Milestones.” Ultima Foods, 2020. Web.

Verbeke, Alain, and Christian Geisler Asmussen. “Global, Local, or Regional? The Locus of MNE Strategies,” Journal of Management Studies, vol. 53, no. 6, 2016, pp. 1051-1075.

World Bank Group. The World Bank Data, 2019. Web.

“Yogurt Market Brief.” China AG, 2018. Web.

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